Settlement Agreement

Definition - What does Settlement Agreement mean?

Settlement agreement refers to the contract signed by two parties, usually involving a civil suit, that terminates a dispute and prevents one party from making claims and demands in the future regarding the issue contested and resolved in the contract.

Insuranceopedia explains Settlement Agreement

A settlement agreement is usually forged by the lawyers of a civil case and can be done out of the court. This is a contract that, when signed, ends the civil suit and cannot be ever brought again in the future. The provisions in the contract must be favorable for both parties. A likely scenario is that of a defendant paying an amount of money to a plaintiff. Accepting the money and then signing the contract means the issue is settled and the plaintiff is going to drop the case.

In insurance, it happens when a person is being offered an amount of money by the insurance company representing a policyholder. A person might make a claim from an incident (for a vehicular accident that a policyholder is liable to). The insurance company reaches out to the complainant, and when the latter agrees to the offer of the former, he or she can no longer make any claims for that accident in the future.